Key findings:
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Knight Frank has completed analysis on the retail markets of ten selected Chinese cities, which included Beijing, Shanghai, Guangzhou and Shenzhen as Tier 1 cities and Tianjin, Chongqing, Wuhan, Chengdu, Dalian and Harbin as Tier 2 cities
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In terms of rental level, Shanghai continues to outperform the other Tier 1 cities, underscoring its popularity among retailers
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Level 1 specialty retail rent levels in Shanghai's prime shopping centres are around 10% higher, reaching RMB1,474 per sq m per month. This is followed by Beijing, Guangzhou and Shenzhen
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The average rent for the Tier 1 cities is RMB1,367 per sq m, whilst the average Tier 2 cities rent is 46% lower at RMB765 per sq m
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Comparison among per capita retail gross floor area (GFA) suggests that Shenzhen (with 0.81 sq m retail GFA per capita) and Dalian (with 0.51 sq m retail GFA per capita) may be the closest to oversupply in broad terms amongst the Tier 1 and Tier 2 cities respectively
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Supply in Shanghai, meanwhile, is still underweight, compared with other Tier 1 cities
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The role of standalone department stores is declining in China, as consumers seek greater variety and retailers opt for their own branded stores. Standalone department stores account for more than a third of the combined stock of shopping centres and department stores, whereas the average for Tier 1 cities is just 20%.
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The average size of Tier 2 shopping centres is more than 18% higher than Tier 1 cities at around 80,000 sq m compared to 68,000
sq m, underpinning the problem of oversized shopping centres in Tier 2 cities
Paul Hart, Executive Director at Knight Frank, comments: “oversized shopping centres which feature in Tier 2 cities reflect a lack of comprehensive planning by the municipal governments. The failure of retail planning is compounded by policies which restrict developers from holding onto their land and phasing their developments. ”
"Some inexperienced developers are eager to maximise the scale of projects as they take the view that these mega centres will deter future competition, and being the largest in the area is a strong marketing asset. However, reality continues to demonstrate that bigger is not always better.”
Mr Hart concludes: “We believe that there are still plenty of opportunities for new shopping centres. However developers and investors need to derive more rigorous assessments for determining the optimum level of retail development on individual sites. Conversely municipal governments’ need to set out their long term retail planning strategy for their respective urban areas based upon demand drivers. Better controls and transparency will improve decision-making, which can help grow the market further.”